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Business Ethics Ethics is the study of right and wrong behavior;
whether an action is fair, right or just. In business, ethical decisions are the application
of moral and ethical principles to the marketplace and workplace.
“What’s Good for Business is Good for the Country” – This former attitude of business is no longer adequate
to insure ethical conduct
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Business Stakeholders
Shareholders Employees Community Customers
The interests/needs of these stakeholders need to be balanced in ethical decision making to
ensure a firm’s long-term survival.
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Ethical Conflicts to be Balanced
Shareholders - want profits Employees - want safe and secure jobs Community - wants economic benefit or the
business and the environment protected Customers - want quality product for good/fair
price
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Business Ethics and the Law
Legal compliance is the moral/ethical minimum. Simply obeying the law does not necessarily make
the business practice ethical. “Gray” areas in the law.
– Business leaders must contemplate the ethical implications of a business decision.
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Ethics and LawE T H I C A L
YES NO
YES
NO
L
E
G
A
L
Ethics, Economics, and Law
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Why is Business Ethics Important?
Directors and Officers – owe a complex set of ethical duties to various stakeholders– When these duties conflict, ethical dilemmas are created
Importance of Values in Business Success– Profits - Ethics Resource Center Study
– Costs of Unethical Behavior
Ethics as a Strategy Good Reputation Personal Reasons Seen as a leader and regulation may be prevented
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EXECUTIVES COMMENT ON REPUTATION
“A reputation, good or bad, is tough to shake.”– Richard Teerlink, CEO, Harley-Davison
“If we were making that decision now in light of the press scrutiny we have been receiving, we probably would not have taken that risk.”
– Robert C. Winters, Chairman, Prudential Insurance
“A bad reputation is like a hangover. It takes a while to get rid of, and it makes everything else hurt.”
– James Preston, CEO, Avon
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Setting the Right Ethical ToneSetting the Right Ethical Tone
Importance of Ethical Leadership and Creating Ethical Codes of Conduct– Clear Communications to Employees– E.g., Costco and Johnson and Johnson’s web-based
ethical training Corporate Compliance Programs Conflicts and Trade-Offs
– Stakeholder interest’s differ
Importance of Ethical Leadership and Creating Ethical Codes of Conduct– Clear Communications to Employees– E.g., Costco and Johnson and Johnson’s web-based
ethical training Corporate Compliance Programs Conflicts and Trade-Offs
– Stakeholder interest’s differ
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Ethics and Leadership
STAYING AHEAD OF THE REGULATORY CURVE
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How does a firm promote the importance of ethical behavior?
Adopt a code of ethics Initial and ongoing employee training Employee hotline for anonymous reporting of ethical
violations Distribute ethical bulletins Management (from the top down) provides a role model Continued review of company policies to determine their
effect on ethical behavior
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Beware!!!
Watch for Dangers of Unethical Environment– Intense competition and issues of survival– Managers making poor judgments– Employees with no personal values
ETHICS
Ethical Dilemma
Ethical Dilemma– A situation that, although offering potential benefits,
is unethical.– One of the most common ethical dilemmas occurs
when a company’s culture conflicts with an employee’s personal ethics.
Ethical Dilemmas in Business
Two Types Private Interest Conflicts with CorporateBusiness Interest Conflicts with Public
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Language of Ethical Dilemmas
“Everybody else does it.” “If we don’t do it, someone else will.” “That’s the way it has always been done.” “We’ll wait until the lawyers tell us it’s wrong.” “It doesn’t really hurt anyone.” “The system is unfair.” “I was just following orders.”
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ETHICAL DILEMMA CATEGORIES Taking things that don’t belong
to you Saying things you know aren’t
true Giving or allowing false
impressions Buying influence or engaging
in conflict of interest Hiding or divulging
information Taking unfair advantage
Committing personal decadence
Perpetrating interpersonal abuse
Permitting organizational abuse
Condoning unethical actions
Violating rules Balancing ethical dilemmas
ORGANIZATIONAL ETHICS
MANAGEMENT TIPS
Checklist for dealing with ethical dilemmas – Step 1. Recognize the ethical dilemma. – Step 2. Get the facts. – Step 3. Identify your options. – Step 4. Test each option: Is it legal? Is it right? Is it beneficial? – Step 5. Decide which option to follow. – Step 6. Ask the “Spotlight Questions”: To double check your
decision. » “How would I feel if my family found out about my decision?” » “How would I feel if the local newspaper printed my decision?”
– Step 7. Take action.
ETHICS Ethics and Work
The Wall Street Journal reports: • 36% of workers calling in sick are lying.
• 35% keep quiet about co-worker misconduct.
• 12% of job resumes contain falsehoods.
• Managers are more likely than other workers to report wrongdoing.
• Managers with 0–3 years experience feel most pressure to violate personal ethics.
ETHICS
Rationalizing Unethical Behavior
Four reasons: 1. “What I’m doing is not really illegal.” 2. “My behavior is in everyone’s best
interests.” 3. “Nobody will ever find out what I’ve
done.” 4. “The organization will protect me.”
ETHICS AND ETHICAL BEHAVORIAL
Organizational EthicsMODULE GUIDE 4.2
Personal and contextual factors influence ethical conduct Training in ethical decision making may improve ethical
conduct Protection of whistleblowers may encourage ethical
conduct Managers acting as positive role models may motivate
others toward ethical conduct Formal codes of ethics set standards for ethical conduct
ORGANIZATIONAL ETHICS
Ethics Training
Ethics Training– Seeks to help people understand the ethical aspects
of decision making and to incorporate high ethical standards into their daily behavior.
Code of Ethics– A formal statement of values and ethical standards
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Ethical Dilemma Resolution Models
Blanchard and Peale– Is it legal?– Is it balanced?– How does it make me feel?
Front Page of the Newspaper Test– How would the story be reported?– Objective and informed reporter’s point of
view
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Ethical Dilemma Resolution Models
Laura Nash– Put yourself in the other’s shoes.– Can I discuss my decision with family, friends?– What am I trying to accomplish?– Long-term comfort level
Wall Street Journal Model– Comply with the law– Contribution to stakeholders– Consequences-short and long term
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Business Ethics on a Global Level
American companies must be trained in cross-cultural business practices
Monitoring the Employment Practices of Foreign Suppliers– Corporate Watch groups can disseminate information
instantly around world Foreign Corrupt Practices Act
– Bribes and Accounting Practices
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Foreign Corrupt Practices Act
Prohibits making, authorizing or promising a gift to a foreign official with the intent to corrupt
Applies to business concerns with their principal office in the United States
Grease payments are permitted– secure permit or license, obtain paper processing,
secure police protection, phone, water, power supply, etc..
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FCPA Elements
Instrumentality of interstate commerce used; Payment or something of value given to:
– foreign official with discretionary authority– foreign political candidate– foreign political party;
Purpose of payment is to get the recipient to act or to not act; and
Intended result is assisting giver’s business
ORGANIZATIONAL ETHICS
Managers
Management Behavior– In order to have a positive impact on ethical conduct
throughout an organization, those at the top must walk the talk.
ORGANIZATIONAL ETHICS
Whistleblowers
Whistleblowers– Persons who expose organizational misdeeds in
order to preserve ethical standards and protect against wasteful, harmful, or illegal acts.
– Many whistleblowers were / are fired for their actions.
– State and federal laws now offer some protection
Whistleblowing
Act of disclosing wrongdoing in an organization Like blowing a whistle to call attention to a thief Types
Internal External
Can Cause Bitterness in Organization
Dissent - Must speak out against others in organization
Breach of Loyalty - Perceived as one who violates confidentiality and loyalty
Accusation - Singles out specific individuals as threats to organization or the public
Possible Retaliation
Fired Blacklisted Transferred to undesirable locations Lifestyles, sex lives and mental stability
questioned Physical abuse and murder possible
Failure to Reveal Wrongdoing
Severe problems for society or organization
Can be implicated as an accessory before or after the fact
Ethics of Whistleblowing
When is it ethical to reveal wrongdoing ?
When is it ethical to remain silent?
Whistleblowing Example
In charge of Quality Control Company makes parts for automobile brakes Find defect in brake part Could cause failure in brakes Failure not certain May take many years to develop
Whistleblowing Example (cont.)
Go to VP of Production, your boss He tells you to overlook defect - company may
loose too much money
What would you do?
Challenger Disaster
Morton-Thiokol “O” rings Cold in Florida Engineers warned “O” Rings could fail NASA management made decision to launch
Space Shuttle anyway
Cautious Approach to Whistleblowing
1. Make sure situation involves an imminent threat to society or to the business
2. Document all allegations
3. Examine internal whistleblowing first
4. Should you remain anonymous?
5. Get another job first!!!
Bribery
A payment, usually to a public official, to induce that person to either do something improper or to influence decisions or actions
Extortion - same as bribery - recipient of payment initiates transaction
Case
International consulting firm - designs and supervises construction of hydroelectric power generating systems
Your proposal is far superior to any othertechnically
lowest bid To get job, must deposit $250,000 in official’s
personal Swiss bank account
Should you pay the money?
Foreign Corrupt Practices Act of 1997 Grease payment allowed Standard Practice in most foreign countries Results in lost business opportunities for US
companies American tax dollars may be used to pay bribe
Bluffing and Deception
Negotiating a labor contract Plant has experienced losses over past several years
- not clear why Want concessions from labor Tell labor that plant will be closed if no concessions
are made. In reality , no such plans contemplated Is This Ethical?
Managerial Implications
Top Management LeadershipOrganizational Culture
Realistic Goal Setting Ethics Audit Code of Ethics Ethics Committee